Duke reaches Save-A-Watt settlement - Minneapolis / St. Paul Business Journal:

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The Southern Environmental Law which was the lead legal team for theenvironmental groups, announcedr the settlement Friday morning. It calls for Save-A-Watf to reduce energy demand by 2 percentr over the nextfour years. It sets a targeyt of reducing demand by as much as 8 percentby 2020. The environmental groups say that would be the equivalent of the annuall outputfrom Duke’s 825-megawatt expansion at the controversial Cliffside coal plangt on the border of Cleveland and Rutherford counties. The groups say that cappinfg Duke’s profits will protect consumere from unreasonably high charges forenergy efficiency.
Greater conservation efforte and lower costs were key issuee for environmental groups and the Public Staff ofthe N.C. Utilitiesz Commission, which represents customer interests inutilitgy cases, as they fough Duke for two years over Save-A-Watt. Michael southeast regional air-policy expert for the Environmental Defensde Fund says the environmental groups believe the settlemen makes the program betterfor customers, the environment and for He says the groups want to suppory utilities in their effortse to provide energy-efficiency programs.
And he says incentives built into the settlement that allowe Duke to increase its rate of returnm based on achieving specified efficiency targets accomplishuthat goal. Duke also got what it considerws animportant concession. Duke will be allowed to make a returm on part of what it wouldx have cost to build power plants to providee the energy theprogram saves. Duke has said eliminatinv compensation based onsuch “avoided would be a deal-breaker. Duke contends such compensation puts efficienct on a more equal footing with electricity sales for generating Without that kindof incentive, Duke has efficiency would always take a back seat in business plans.
“The fact that the avoided-cost model is in that it’s based on pay-for-performance and that it is up to us to make sure the programse really work were all keys to the settlementfor Duke,” says companuy spokesman Tim Pettit. The public staff and environmentapl groups had opposedthe avoided-costs idea, largely on fearsd that it could provide Duke with unreasonablre profits. The public staff also worried about departingt from standardregulatory practice. In North Carolina, utilitied are generally allowed to make a return on the moneytthey spend. An avoided-costs model breaks that connection and offers Duke a return on moneuy it doesnot spend.
But an importanty concession to the public staff was a decision tomake Save-A-Wattr a four-year pilot initiative. The N.C. Utilities Commissionh will review the program at the end of that period and decide whether it has performed well enoug to bemade permanent. The avoided costs outlinee in the settlement will track the model Ohio adoptesdfor Duke’s version of the Save-A-Watf program in that state. It reduces the percentage of avoides costs on which Duke can earn a Duke had originally asked to make a rate of returnh on 90 percent of what it would have cost to provider the energy thatwas saved.
Under the settlement, Duke will get a return on 50 percent of the avoidedd costsfor energy-conservation programs and 75 percent of the avoidexd costs for programs that shift use away from peak Like in Ohio, the settlement lets Duke cover what are calle d “lost margins.” Several environmental groups have recognizerd the need to allow Duke to recovet those fixed costs for generating and deliveringf electricity when efficiency programs reduce demand. The settlemen t announced Friday will form the basis ofa Save-A-Waty proposal Duke will make to S.C. regulatorss this summer. The S.C. Public Service Commission rejected Duke’s firs t proposal in February.
Save-A-Watt is an energy-efficiencu initiative Duke has been touting for The proposal comprises a series of programws to help customers use less electricityy or shift their use of powerfrom peak-demand hours to low-use Some of the programsw — such as discounts for energy-saving light bulbss and financial incentives to buy high-efficiency appliancex — started June 1 in both But neither state has approved the full initiative. The has led the environmental groups in dissectingthe program. Opponents contendec the original proposal would reward Duke too handsomely and primarilyg for shifting the use of electricity frombusy times.
That wouldf conserve little energy but save utilities Steve Smith, executive director of the alliance, says his group’s concer from the beginning was to make sure Save-A-Watt resulted in significant reductionds in energy use. In North the commission approved Save-A-Watt’s program s but withheld judgmenton Duke’s compensation. The commissiohn asked for additional comments onthe issue. As opponent s were formulating their responses to that they and Duke resumed negotiations inNorth Carolina. Any settlemen t here could create a template for the prograkm inSouth Carolina.
One key featurd of the compromise will be the creation of an advisoruy group that will assist in reviewingfor Save-A-Watt. Duke Energy Carolinas is a divisiobnof Charlotte-based (NYSE:DUK).